Topic
Loss aversion
About: Loss aversion is a research topic. Over the lifetime, 2898 publications have been published within this topic receiving 115198 citations.
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TL;DR: In this paper, the authors make the following arguments: 1. Loss aversion provides a powerful justification for placing the burden of proof on the plaintiff; 2. Burden of proof is not a mere tiebreaker; it sets a reference point and creates a default effect; 3. Ceteris paribus, to minimize the total costs of erroneous judicial decisions, loss aversion calls for setting the standard of proof considerably higher than 51%.
Abstract: The basic rule in civil litigation is that the plaintiff carries the burden of proof and the general standard of proof is preponderance of the evidence. The plaintiff prevails if she establishes her case with a probability exceeding 0.5. Drawing on insights from behavioral economics and new experimental findings, this paper makes the following arguments: 1. Since litigants tend to take the status quo as the pertinent reference point, erroneous dismissal of a claim is likely to be perceived as denying the plaintiff deserved gains, and erroneous acceptance of a claim perceived as inflicting undeserved losses on the defendant. Loss aversion thus provides a powerful justification for placing the burden of proof on the plaintiff; 2. Notwithstanding the formal rule, behavioral insights and experimental findings lend support to the hypothesis that the actual standard of proof in civil litigation is higher than 51%. This phenomenon is likely due to factfinders' omission bias. Burden of proof is not a mere tiebreaker; it sets a reference point and creates a default effect; 3. Ceteris paribus, to minimize the total costs of erroneous judicial decisions, loss aversion calls for setting the standard of proof considerably higher than 51%. While conflicting considerations militate against this proposal, this factor should not be overlooked.
35 citations
TL;DR: In this paper, the authors discuss how behavioral decision elements studied in the behavioral decision literature impact the manner in which people behave in conflict situations studied by Green, and in the spectrum auction conducted in the United States.
35 citations
TL;DR: This study shows for the first time that changes in loss aversion, but not in personality traits, are associated with the time course of pathology, and can be usefully employed in the fields of both gambling addiction and decision-making.
Abstract: Research has shown that healthy people would rather avoid losses than gamble for even higher gains. On the other hand, research on pathological gamblers (PGs) demonstrates that PGs are more impaired than non-pathological gamblers in choice under risk and uncertainty. Here, we investigate loss aversion by using a rigorous and well-established paradigm from the field of economics, in conjunction with personality traits, by using self-report measures for PGs under clinical treatment. Twenty pathological gamblers, at the earlier and later stages of clinical treatment, were matched to 20 non-gamblers (NG). They played a “flip coin task” by deciding across 256 trials whether to accept or reject a 50–50 bet with a variable amount of gains and losses. They completed questionnaires aimed at assessing impulsivity. Compared to NG, pathological gamblers, specifically those in the later stages of therapy, were more loss averse and accepted a lower number of gambles with a positive expected value, whereas their impulsivity traits were significantly higher. This study shows for the first time that changes in loss aversion, but not in personality traits, are associated with the time course of pathology. These findings can be usefully employed in the fields of both gambling addiction and decision-making.
35 citations
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TL;DR: The authors explored a behavioral model of political participation, based on the primitives of prospect theory, as defined by Kahneman and Tversky [1979], which offers an alternative explanation for why the President's party tends to lose seats in midterm congressional elections.
Abstract: I explore a behavioral model of political participation, first introduced by Quattrone and Tversky [1988], based on the primitives of prospect theory, as defined by Kahneman and Tversky [1979]. The model offers an alternative explanation for why the President’s party tends to lose seats in midterm congressional elections. The model is examined empirically and compared against competing explanations for the “midterm phenomenon”.
34 citations
Posted Content•
TL;DR: In this article, the authors examined risk tolerance questions based on economic theory, prospect theory, and client self-assessment to determine the extent to which they explain variation in portfolio allocation preference and recent investment changes.
Abstract: The literature on risk tolerance overwhelmingly justifies the use of questionnaires based on validity and reliability or psychometric testing, but there has been little research examining the relation between questions and actual investor portfolio behavior. This study examines risk tolerance questions based on economic theory, prospect theory, and client self-assessment to determine the extent to which they explain variation in portfolio allocation preference and recent investment changes. We conclude that risk tolerance questions based on loss aversion and self-assessment should be used when determining the portfolio allocation of clients. While questions based on economic theory should theoretically be the best measure of a client’s portfolio allocation preference, the results of this study indicate that these questions are not very useful when both loss aversion and self-assessment questions are included in a risk tolerance questionnaire. Financial planners should begin to reassess the risk tolerance level of their clients around age 60, as there is evidence that risk tolerance declines later in life because of cognitive decline.
34 citations